Monday, February 16, 2009

Oh, Won't You Stay...Just a Little Bit Longer...Please, Please, Please....Say You Will

If this were a post just about the timeliness of a late notice disclaimer issued 13-days after first notice, it'd be a short one. Heck, I could tweet it in 140 characters or less (and did, as a matter of fact).

No, this post is more about one of the challenges that both property and liability insurers face in litigating insurance coverage disputes: getting trial courts to stay the trial of the dispute long enough to prosecute an appeal of a dispositive legal issue.

Trial judges and their law clerks do what they can to manage their sizable dockets. I understand and don't begrudge them that. Cases come off dockets in one of three ways: (1) on dispositive motion; (2) by settlement or discontinuance; or (3) after trial. Judges and their clerks understand the economics of trying insurance coverage disputes (a/k/a expense in ratio to uncertainty of result) almost as well as insurers themselves do. Judges also understand, no doubt from past experience, whether active or passive, that a looming trial tends to facilitate settlement of such disputes. Fair or not, scheduling a quick trial or refusing to stay one to allow the insurer to prosecute an appeal, promotes settlement in many cases. Cases that then come off judges' dockets and free up their calendars. To busy litigators and judges, found time can be better than found money.

As a coverage litigator, I've encountered this situation a number of times -- summary judgment denied with a scheduled trial date in fewer months than an appeal can be perfected, argued and decided. More times than not, the trial judges have been unwilling to stay the trial to allow for the completion of an appeal even where, as in most cases, there would be little if any prejudice to the insured if the trial were delayed. Why is that? Why should trial judges care if the appeal goes first? The most probable reason is leverage. To leverage a settlement of the action.

Although this dynamic applies more readily to first-party than third-party coverage disputes, liability insurers are not immune from such economic pressure. My office recently completed a relatively expensive week-long trial of a declaratory judgment action and is a few weeks away from oral argument of the pre-trial denial of our client's motion for summary judgment. The trial judge refused to stay the trial, and our client did not want us to make a formal motion to either the trial judge of Appellate Division. No automatic stay provision of CPLR 5519 applied, and a trial is not a proceeding to enforce an order denying summary judgment, per subdivision (c). We now have two appeals pending -- one from the summary judgment motion denial; and one from the trial judgment. Yes, the jury found against our client at trial, but given who the insured (a church) and venue (a rural, conservative county) were, we knew going in that our best chance of prevailing in that case was on motion, not at trial.

Cut back to the captioned case. From eCourts we learn that this action was brought in August 2006 against State Farm pursuant to New York Insurance Law § 3420(a)(2) and (b)(1) to enforce a $150,000 default judgment that was granted against State Farm's insured, Jose Rodriguez, on February 9, 2006 for injuries the plaintiff allegedly had sustained in a motor vehicle accident on June 30, 2001. State Farm received first notice of the accident on December 14, 2004 (more than three years after the accident date, presumably in relation to the underlying Roules v. Rodriguez action) and disclaimed coverage to Mr. Rodriguez under his auto policy based on late notice on December 27, 2004, 13 days later.

After obtaining the default judgment, Roules sued State Farm, contending that its denial of coverage to Rodriguez was wrongful. State Farm moved for summary judgment, which was denied, the motion court holding in August 2008 that "whether the service of the disclaimer in this action was timely, remains an issue of fact." State Farm appealed.

CPLR 2201 provides:

Stay

Except where otherwise prescribed by law, the court in which an action is pending may grant a stay of proceedings in a proper case, upon such terms as may be just.

In this case, it appears State Farm made a motion to stay the trial of this 3420(a)(2) judgment-creditor's enforcement action directly to the Appellate Division, Second Department, which, without opposition from the plaintiff-respondent, the Second Department granted on October 30, 2008 "pending hearing and determination of [State Farm's] appeal." Neither the eCourts' appearance listing nor the Second Department's memorandum decision reveals when the trial of the action had been scheduled.

Last week, the Second Department issued its decision on State Farm's appeal. Not surprisingly, at least not to me, the court ruled that "[c]ontrary to the determination of the Supreme Court, the timeliness of the disclaimer issued by the defendant State Farm ... did not present an issue of fact":

Would the Second Department have been less likely to grant State Farm's motion for a stay of the trial had the plaintiff-respondent opposed that motion? Perhaps. Regardless, I submit that more trial and appellate courts should exercise their discretion under CPLR 2201 to grant stays of trials in insurance coverage cases where the insured or judgment creditor will suffer little or no prejudice from a delay of mere months to permit an appeal to be perfected, argued and decided. It's not that I don't understand how the litigation game is played in cases such as this with judges who apply pressure on insurers to settle and forgo their appeals. I don't have to like it, though.

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Coverage Counsel is brought to you by the law firm of MURA & STORM, PLLC with a main office in Buffalo, New York. To contact us, call (716) 855-2800 or email Roy Mura, the editor of this blawg.

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